What's the impact of government 'meddling' on listed companies? That's the topic of debate at Liberum Capital which issues an interesting research note looking at a range of sectors.
Liberum says the 'tentacles of government' are growing. We've already seen how the market panic sold utility stocks when Labour leader Ed Miliband last month said he wants to freeze gas and electricity prices in the UK for 20 months if his party wins the 2015 election.
'Politicians try and balance three key objectives; ensuring security of supply/service, affordability, and to meet environmental goals. However, politicians often find it hard to find a balance between these objectives and are prone to sudden switches of priority,' says Liberum analyst Peter Atherton. He says Miliband's indicated intervention has materially increased the political risk of the UK utility sector as it threatens to force utility providers to soak up government-inspired cost increases.
The transport sector is threatened by greater state control given the direction in which Labour proposes to take the industry. Many rail franchises could be handed to public sector or non-for-profit operators. There could also be greater 'meddling' with rail fares and structures.
Transport operators FirstGroup (FGP), Go-Ahead (GOG), National Express (NEX) and Stagecoach (SGC) would be exposed to more constraints and tougher regulation should Labour Party proposals become reality, says Liberum's Gerald Khoo. He believes FirstGroup and National Express should benefit from having greater overseas earnings than their more UK-focused peers.
Support services is already seeing the grip of the government around its throat. The public sector was meant to be the source of long-term earnings streams. Now it is a source of major risk.
Liberum says the coalition government has been 'reluctant' to publicly back outsourcing. We've already seen investigations following prison tagging and escorting contract scandals at Serco (SRP) and G4S (GFS), leading to negative publicity over outsourcing deals. The investment bank says it would be surprised if further issues did not come to light.
'The government witch hunt of outsourcers is popular: it lambasts big business, champions tax payers' interest and portrays Labour as incompetent,' says Liberum's Joe Brent. He believes there will be limited outsourcing opportunities ahead given the usual hiatus before and after a general election. This means a slowing of outsourcing deals until the end of 2015, potentially affecting Serco, G4S, Babcock (BAB), Capita (CPI) and MITIE (MTO).
Also being discussed by Liberum is the real estate sector. It says possible measures to cool the London housing market are a risk to Capital & Counties (CAPC).
There's positive and negatives for the aerospace and defence sector. Liberum says government attempts to boost UK exports to £1 trillion by 2020 are highly relevant given the defence industry’s export potential. Yet it sees a risk of negative meddling surrounding big ticket platforms, such as the new aircraft carriers built by BAE Systems (BA.) and Babcock.